The Rise of Online Contracts: Legal Framework and Key Considerations

Theoretical overview

Online contracts are an agreement made, signed and executed electronically, usually over internet in electronic form, no paper is used. An online contract is a contract that you write on your computer and email to a business associate and that the business associate accepts the email with an electronic signature. Online contracts are also known as e-contracts.

An online contract is simply a digital version of a regular contract. However, it isn’t enough for an electronic contract to just be a contract; it must also be a valid contract within the interpretation of the law.

In case of an online contract, the seller who intends to sell their products, present their products, prices and terms for buying such products to the prospective buyers. In turn, the buyers who are interested in buying the products either consider or click on the ‘I Agree’ or ‘Click to Agree’ option for indicating the acceptance of the terms presented by the seller or they can sign electronically.

Types of Online Contracts

Online contracts can be of three types mainly i.e., shrink-wrap agreements, click or web-wrap agreements and browse-wrap agreements: –

Shrink-Wrap Agreements

Shrink-wrap agreements are usually the licensed agreement applicable in case of software products buying. Shrink-wrap contracts are typically licensing agreements for software. In case of shrink-wrap agreements, with opening of the packaging of the software product, the terms and conditions to access such software product are enforced upon the person who buys it. Shrink-wrap agreements are simply those which are accepted by user at the time of installation of software from a CD-ROM, for example, Nokia pc-suite. Sometimes additional terms can be observed only after loading the product on the computer and then if the buyer does not agree to those additional terms, then he has an option of returning the software product. As soon as the purchaser tears the packaging or the cover for accessing the software product, shrink-wrap agreement gives protection by indemnifying the manufacturer of the product for any copyright or intellectual property rights violation. Shrink wrap contracts have a decided advantage over other types of electronic contracts in that their acceptance can be reversed by returning the product.

Click-Wrap Agreements

Click-wrap agreements are web based agreements which require the assent or consent of the user by way of clicking “I Agree’ or “I Accept” or “Ok” button on the dialog box. They’re called clickwrap contracts because the user typically has to click a button or check a box to indicate that they accept the contract. Users who disagree to the terms and conditions will not be able to use or buy the product upon cancellation or rejection. A person witnesses web-wrap agreements almost regularly. The terms and conditions for usage are exposed to the users prior to acceptance. For agreement of an online shopping site etc. You’ll have noticed that clickwrap contracts are “less negotiable” than shrink-wrap contracts, i.e., they must be accepted for the user to proceed to the next web page or gain access to an application, so forth. Essentially, clickwrap agreements create a scenario in which the user is forced to either take it or leave it. 

Browse-Wrap Contracts

An agreement made intended to be binding on two or more parties by the use of website can be called a browse wrap agreement. In case of browse wrap agreement a regular user of a particular website deemed to accept the terms of use and other policies of the website for continuous use. They refer to pieces of text on websites that go something like – “By continuing your use of these services, you agree to the terms and conditions” or “By signing up I agree to the terms of use.” Essentially, browse-wrap agreements are contracts that you agree to simply by continuing to use the service or continuing to browse the web page, which is where the term originates. Additionally, the terms of browse-wrap agreements can be viewed usually through a hyperlink

The essential elements of Online Contract

1. Offer : – Just like paper made or conventional contract, one of the most essential elements of online contract is the requirement of an offer to be made. There must be a lawful proposal or offer made by one party known as the proposer and it is the starting point of a contract. By browsing and choosing the goods and services available on the website of the seller, the consumer makes an offer to purchase such in relation with the invitation to offer made by the seller. A proposal must be distinguished from the invitation to offer or treat and must be made with an intention to create legal relationship. An offer or proposal is revocable and can be withdrawn at any time before it is accepted because once it is accepted by the other party, it becomes a promise.
2. Acceptance :- When a proposal or offer is made is accepted by the person to whom the offer is made, it becomes a promise. The acceptance of the proposal must be unconditional and absolute and must be communicated to the proposer or the offeror. In case of an online contract, offer and acceptance can be made through e-mails or by filing requisite form provided in the website. They may also need to take an online agreement by clicking on ‘I Agree’ or ‘I Accept’ for availing the services offered.
3. Intention to create Legal Relationship :- If there is no intention of creating legal relationship on the part of the parties to contract, then there is no contract between them. It is an essential element of valid contract that parties to the contract must have intention to create legal relationships. The intention of the parties is to be considered by the Court in each case and must be ascertained from the terms of the agreement and surrounding consequences. Agreement of social or domestic nature do not create legal relationship, hence they are not contracts and are not enforceable by law. In the case of arrangements regulating social relations, it follows as a matter of course that parties do not intend legal consequences to follow. For example, an invitation for marriage to a friend or family through e- mails or fax or through any means of telecommunication is not a contract.
4. There must be a Lawful Object :- Parties to the agreement must contract for a legal object. A contract is only enforceable by law only when it is made for a lawful purpose. It must not defeat any provision of law and must not be fraudulent in nature. Thus a contract on a website designed for the purpose of selling illegal substances online is a void contract. If an agreement is made to cause injury to any person or his property, such agreement is not lawful and therefore to be considered as void. If any competent Court regards any agreement as opposed to public policy, it is a void contract.
5. There must be a Legal or Lawful Consideration :- Consideration is one of most important element of a contract. The basic rule is that when a party to a contract promises to perform his promise he must get something in return for the performance of his promise. Consideration is something of some value in the eyes of law. It may be of some benefit, right, interest or profit given to the party as inducement of promise. An act constituting consideration must be moved at the desire of the promisor and must be legal, real and not imaginary. Promises that are physically impossible to perform cannot have real consideration. For example, an online site that offers purchase of land in moon. 
6. Capacity of Parties: – Parties to a contract must be capable of entering into a contract. He must attain the age of majority and must be of sound mind. He must not be disqualified from contracting by any law for the time being in force. In our country an agreement where either party is a minor has no significance. It is considered as void ab-initio. As per Section 12 of the Indian Contract Act, 1872, any person who is in a position to judge and safeguard his own interest is of sound mind and capable enough to enter into a contract. When a person is declared insolvent by any competent Court, he cannot enter into a contract relating to his property. 

7. There must be Free Consent: – Consent which is defined under Section 13 of the Indian Contract Act, 1872 is an essential requirement of a contract. It is basically the meeting of minds of the parties. When both agree upon the same thing in the same manner, they are said to consent. In case consent is caused by coercion, it is voidable at the option of the party whose consent was so caused. Coercion includes physical compulsion, threat, and violence. Consent has to be free and genuine and not induced by misrepresentation, undue influence i.e a case where one person is in a position to dominate the will of another. But in case of online contract there is a narrow scope of physical communication between the website and the customer availing their service, they just give consent by clicking the option that ensures free and genuine consent.  

E-contracts

They can be entered through communications such as e-mail, internet and fax. The only requirement for validating an e-contract or online contracts in compliance with the necessary pre-requisites provided under the Indian Contract Act, 1872. These are: –

• Offer and Unconditional Acceptance: – It can be made online or by e-mail communication.
• Legitimate Purpose and Consideration: – A contract is enforceable only by law when there is no clause made against the law and there should be some consideration as well. It should not defeat any provision of the law and should not be fraudulent in nature.
• Capacity of the Parties and Free Consent: – Parties to a contract can enter into a contract if they meet the requirements of sections 11 and 12 of the Indian Contract Act, 1872 (contract capacity), and the parties’ consent should be free as per Section 13 of the Indian Contract Act, 1872..

Evidentiary value of electronic records

In a country like India, where the literacy rate is not so high, the concept of ‘Digital India’ is a far reach. People still feel insecure to do online based transactions mainly because the terms and conditions of such contracts are not transparent. Another major issue is the nature of the law governing the electronic contracts. Even if the IT Act, 2000 has legalized electronic contracts, there are no definite provisions mentioned in the Act.

Documents are mainly registered for conservation of evidence, assurance of title and to protect oneself from fraud. The evidentiary value of electronic contracts has been given recognition and can be understood in the light of various sections of Indian Evidence Act. Section 65-B of the Indian Evidence Act, 1872 deals with the admissibility of electronic records. As per Sec 65B of the Indian Evidence Act any information contained in an electronic record produced by the computer in printed, stored or copied form shall deemed to be a document and it can be admissible as an evidence in any proceeding .

Section 85A, 85B, 88A, 90A and 85C of the Indian Evidence Act deal with the presumptions as to electronic records. 

Sec 85A has been inserted later to confirm the validity of electronic contracts. It says that any electronic record in the form of electronic agreement is concluded and gets recognition the moment a digital signature is affixed to such record. The presumption of electronic record is valid only in case of five years old record and electronic messages that fall within the range of Section 85B, Section 88A and Section 90A of Indian Evidence Act.

It is essential that the document or e-mail sought to be produced from a computer is used regularly by someone who has legal control over the system at the time of production.

Relevant sections

• Section 65-B of the Indian Evidence Act, 1872 deals with the admissibility of electronic records. As per Sec 65B of the Indian Evidence Act any information contained in an electronic record produced by the computer in printed, stored or copied form shall deemed to be a document and it can be admissible as an evidence in any proceeding .
• Section 85A, 85B, 88A, 90A and 85C of the Indian Evidence Act deal with the presumptions as to electronic records. 
• the parties’ consent should be free as per Section 13 of the Indian Contract Act, 1872..
•  As per Section 12 of the Indian Contract Act, 1872, any person who is in a position to judge and safeguard his own interest is of sound mind and capable enough to enter into a contract.

Important case law

Hadley vs. Baxendale. According to the rules laid down in this case, there can be damages which naturally arose on the usual course of things from such breach of contract and can be called ordinary damages and secondly, damages for loss arose from special circumstances i.e., special damages.

Points to remember

• An online contract is simply a digital version of a regular contract.
• Documents are mainly registered for conservation of evidence, assurance of title and to protect oneself from fraud
• Shrink-wrap agreements are usually the licensed agreement applicable in case of software products buying. Shrink-wrap contracts are typically licensing agreements for software
• Click-wrap agreements are web based agreements which require the assent or consent of the user by way of clicking “I Agree’ or “I Accept” or “Ok” button on the dialog box. They’re called clickwrap contracts because the user typically has to click a button or check a box to indicate that they accept the contract
• An agreement made intended to be binding on two or more parties by the use of website can be called a browse wrap agreement.
• E-contracts can be entered through communications such as e-mail, internet and fax.